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When Karnal, a region in Haryana beat even metro centres to collect the highest premiums for Life Insurance Corporation (LIC) in the late 90’s, all the senior management at the insurance behemoth sat up and took notice. Behind this was a senior divisional manager called Vijay Kumar Sharma. More than 20 years later, LIC will buy controlling stake in a large public sector lender. The man behind the deal is the same; this time he happens to be the LIC chairman.
The Cabinet Committee of Economic Affairs (CCEA) on Wednesday approved LIC’s proposal to own controlling stake in state-owned IDBI Bank. The move paves way for LIC to acquire 51 percent in the public sector bank consequently taking the government's stake down from the current 80.96 percent to around 45 percent.
When several questions over the deal and LIC's ability to help the bank clear out its non-performing assets arose, company insiders said Sharma was convinced that it would be a good investment opportunity. In fact, Sharma, who turns 60 this year, was among the first at LIC to dream of a banking licence as early as 2013 as the chief of LIC Housing Finance.
It was Sharma’s conviction that led to the proposal reaching the insurance regulator’s table. After getting a green signal from Insurance Regulatory and Development Authority of India (IRDAI), a go-ahead from the cabinet was the next step. With all the major hurdles cleared, it is only a matter of a few months that IDBI Bank will be a subsidiary of LIC.
Early days at LIC
‘Go-getter’ is a term that peers associate the 59-year-old who has spent 37 years at the insurer. A postgraduate in Botany from Patna University, Sharma joined LIC as a direct recruit in 1981. He moved across the country studying LIC’s different businesses and zonal business strategies, working his way up the ladder in areas spanning pension, group schemes and zonal operations.
In 2007, he was elevated to the rank of executive director. The country was grappling with the lack of social security schemes and the Aam Aadmi Bima Yojana was launched for rural landless households. LIC was given the mandate for managing the project and Sharma led the charge.
Sharma soon took the role of LIC’s zonal manager in-charge of the southern zone, and was able to turnaround the operations and make it the number one zone in terms of business in 2010.
Move to LIC Housing Finance
Sharma took charge of LIC Housing Finance, as Director and Chief Executive in December 2010. He was elevated to the post of Managing Director and CEO in March 2013. Considered an internal favourite, peers said that Sharma was an easy choice for the top post.
This was a time when LIC Housing Finance was facing competition from large financial companies in the home loan segment. When he took over, LIC’s loan book was around Rs 46,400 crore. Under his leadership, this jumped by 80 percent to Rs 83,200 crore by mid-FY14.
Till then, LIC HFL was considered a traditional player. Sharma took on the mandate of re-branding the entity and also improve the technological efficiencies of the entity. Under him, LIC HFL’s net-worth more-than-doubled from Rs 3,390 crore from Q2FY11 to Rs 6,828 crore in Q2FY14 just before he moved back to LIC.
Sharma’s aspirations also grew larger. He wanted LIC HFL to become a bank. They did apply for a licence but were not granted permission to start banking operations.
Back to home turf
Sharma was appointed as LIC’s managing director in November 2013. Looking at the business strategies of the insurance company, he pushed the initiatives of financial inclusion and insurance products for BPL families.
Less than three years since Sharma took up the MD post, a mini-crisis hit LIC. In June 2016, S K Roy resigned from the LIC chairman citing ‘personal concerns’ two years before completing his tenure. Amid a volatile situation, Sharma was made the officiating chairman to assuage investor concerns.
Being one of the largest investors in the equity markets with about Rs 50,000 crore being pumped into the equity markets every year, a ‘headless’ LIC was not seen as a positive cue. Sharma was brought in to cool off the uncertainties that arose from Roy stepping down.
Turnaround of LIC
At the close of FY15, new business premium collections at LIC dropped 14 percent, whereas private life insurers had seen a growth of 18 percent. Questions were raised on the relevance of LIC in the market and whether it was losing steam in the wake of aggressive competition from private peers.
Sharma officially took over as LIC chairman in December 2016 and proved critics and doubting Thomases wrong. The insurance company ended FY17 with a 27 percent growth in premiums, beating the private sector peers. The message was clear: LIC is not losing out soon.
But company executives said that Sharma always regretted the fact that they weren’t granted a banking licence. Around the same time, the Reserve Bank of India (RBI) had said that they were open to considering a process of on-tap licences for interested entities. So all hopes were not lost.
PIL against LIC
Being a large entity, the decisions of LIC to invest in companies like ITC have been questioned. A public interest litigation was filed in the Bombay High Court saying that LIC being a life insurance company should not be investing in tobacco firms.
Sharma defended the move saying this was a purely investment decision and that they have been investing in companies across sectors.
Another area where Sharma has been prodded constantly is the perception that LIC is the bailout agency of the government. Be it large public issues by state-owned entities or any disinvestment in government entities, LIC has been a large player in such instances.
Sharma, however, has consistently maintained that these are independent decisions by LIC based on the merits of the investee company. Meanwhile, outsiders maintain that most of the decisions are still dictated by the government.
LIC has often been considered opaque with respect to investment decisions. While Sharma has made statements on a few occasions about them investing into certain sectors, a more transparent approach would be a welcome change. Until then, questions will loom large on the exact reasons why LIC buys a large chunk in all government-led company investments.
IDBI takes centre-stage
Early in FY19, a proposal had floated about IDBI Bank being put on sale. The government, on one hand, was looking to reduce its stake in the bank. On the other hand, sources said that they wanted to ensure that the bank was in good hands.
As various structures and instruments were being discussed, LIC entered the fray. It was the much needed second chance for LIC to own a banking entity and acquiring a large bank meant that they did not have to start from scratch.
LIC unions, on the other hand, have questioned the move. A senior union member said that this would mean that LIC is indirectly recapitalising an ailing bank. The unions have also maintained that this is detrimental to the policyholders, since the IDBI Bank buy is being made out of the premium money collected.
"Sharma should have first brought all stakeholders on board, especially the unions, before making the proposal official. Without this, there is bound to be tough protests," said a senior company executive.
While Sharma believed that the IDBI Bank deal was a ‘win-win’ proposition for both LIC, the policyholders as well as the government; not everyone is convinced especially since IDBI Bank has issues of large bad loan. Unlike his predecessors who would not be very vocal about their decisions, his peers said that Sharma ensures that he is firm with his decisions, irrespective of whether everyone supports him or not.
Private insurers have also suggested that LIC still gets preferential treatment and has been granted exceptions over and above the 15 percent investment limit. However, Sharma has defended this by saying that they are a large entity.
All the past LIC chairman have talked about the legacy of the institution and how it is distinct from the private sector peers, Sharma for the first time assured the market that they will bring down the stake in all entities to the 15 percent threshold.
While this may not be the perfect solution, it has brought some temporary calm to the private sector.
Will IDBI Bank see a turnaround?
For the IDBI Bank deal, with the cabinet nod coming in, the last few procedural approvals from Securities and Exchange Board of India as well as RBI will be the last leg of the deal. Sharma, who still has three more years as chairman will be the sole responsible person for the bank’s turnaround as well.
IDBI Bank’s net loss for the March quarter of FY18 widened to Rs 5,662.76 crore year-on-year (YoY) on weakening asset quality and rise in provisions. During the quarter under review, IDBI Bank's provisions for non-performing assets rose by 77.9 percent to Rs 10,773.30 crore as against Rs 6,054.39 crore in the year-ago period.
A man who is called ‘crisis manager’ by his LIC colleagues, Sharma will have to do a repeat of his past successes, and bring down the bad loans and get the bank back on track on the profitability front. How soon will he be able to do it? This is an answer that the market is seeking with a baited breath.